Life Insurance
Income Protection
Description of cover: this insurance is designed to provide the policy owner with a replacement income following a specified waiting period, where the insured becomes unable to earn an income due to illness or injury. The premiums payable are usually tax deductible and the maximum benefit payment is normally 75% of the insured's gross earnings.
Term Life Insurance
Description of cover: this insurance is designed to provide a payment (the sum insured) within a specified term in the event of the death of the life insured. When the policy lapses or is cancelled there is no cash (surrender) value i.e. the annual premium does not contain any investment component. A term life insurance policy may also include a terminal illness benefit provision whereby the benefit may become payable where the insured is diagnosed as having less than 12 months to live.
Total & Permanent Disability (TPD) Insurance
Description of cover: this insurance is designed to pay a lump sum where the insured suffers a disability which causes them to be totally and permanently disabled. The TPD cover (sum insured) is usually limited to a maximum of the term insurance sum insured. TPD is often taken out in conjunction with term life insurance and referred to as a 'rider'.
Trauma Insurance
Description of cover: this type of cover is often referred to as critical illness insurance and is designed to provide a lump sum payment to the policy owner on diagnosis of a specified medical conditions or injury. Specified medical conditions typically covered in trauma insurance are cancer, heart attack, stroke and paraplegia although policies do differ in the scope of the medical conditions covered and their definitions.
Owning Life Insurance through a Superannuation Fund
The advantage for the life insured to be owned through a superannuation fund is that it can be paid for by salary sacrificing the premiums meaning that the premiums are paid before tax. If the policy is owned outside of superannuation then the premiums are not tax deductible meaning you pay the premiums with after tax dollars. Providing that the funds for life insurance are paid to a beneficiary being the spouse then there would be no tax payable in the hands of the recipient. If there was a total and permanent disability claim however, the fund would be taxed at the maximum of 30%. This obviously is a disadvantage and needs to be considered. By owning the policy in your own name the premiums are paid with after tax dollars however both life insurance and total and permanent disability insurance is paid out tax free. This can be very important when looking at trying to cover all of your debt.
Important Note:
Two contracts are available within the income protection market – "cancellable" and "non-cancellable". Cancellable policies can be cancelled by the insurance company at any time regardless of whether you have made a claim or not. Non-cancellable policies cannot be cancelled by the insurer unless a specific event has occurred i.e. premium's have not been paid.
We only recommend Non-Cancellable Policies.
"Stepped Premium" means that the cost of the premium will increase each year as you get older. The premiums shown assume that your application will be accepted oat standard terms. The premium rates and benefits offered may be adjusted subject to assessment of your occupation, health and pastimes.
"Waiting Period" means the amount of time you must be disabled as per the policy wording due to accident of illness and under the care of a Medical Practitioner before the monthly benefit is paid. For example, if you have a 30 day waiting period and are off work due to accident of illness for 10 days you will not receive any benefit. If you are off work due to accident of illness for 35 days you will get your benefit paid for 5 days. The monthly benefit is paid in arrears.
"Benefit Period" means the maximum period of time you will receive your benefit paid for any one injury or illness. Unless otherwise specified, the benefit period commences at the end of the waiting period.
"Agreed Policy – vs – Indemnity Policy" – Agreed policy means that you must supply financial information to substantiate your income net of business expenses at time of application which ensures that at time of claim your benefit would be paid as per your schedule, whereas Indemnity value means that you have to prove your income net of business expenses at time of claim and you may not receive your schedule benefit as your income may be lower at that time.
